Projecting your behavioral health practice’s profitability isn’t as hard as you may think. The process requires financial clarity, a little analysis, and brainstorming. Finally, add specific goals for new income streams if your practice is seeing red.
The most important piece is getting crystal clear about your practice’s current financial health. How much is the practice earning monthly? How much is your overhead? What’s a realistic expectation around the number of sessions per week? No matter how overwhelming this may seem, you can do it.
And, it’s important for the health of your business. This is true even if you are a solo practitioner.
Profit projections give your business a road map to follow in the months ahead. Follow this simple guide to create a map of your own.
Behavioral Health Practice Profitability
Unfortunately, business and marketing courses are rarely part of the curriculum on the journey to becoming a behavioral health clinician. Individuals pursuing careers in behavioral health are often motivated more by the desire to help rather than the desire to profit. As such, few pursue extra-curricular means to learn business skills.
Many behavioral health professionals view profit-increasing actions as futile in a field where insurance companies and government agencies have historically set and devalued reimbursement rates compared to general medicine. But, learning how to leverage business principles can greatly influence a practice’s short and long-term financial health and profitability. And, with the right tools and processes in place, you can increase your reimbursement rates.
Creating an annual fiscal forecast is necessary for any good business management, including mental healthcare practices. Don’t give in to the idea that the process is futile. Even small practices in the red will benefit from taking a fiscal inventory.
Opportunities abound when practices focus on specialties and additional revenue streams.
Start Here: Add Up Expenses and Revenue
Expenses. What’s your bottom line each month? How much do you need to cover the following: salary, rent, utilities, administrative help or billing subscriptions, professional subscriptions and memberships, EHR and other software, office supplies and equipment, tax prep, meals, transportation, reserve accounts, licensure renewal and/or continuing education, marketing, employee salaries, misc. What’s the total?
It’s important to mention here that if this task takes a long time, you may want to look at how you are tracking costs. Investing time and energy into efficient accounting processes means more visibility and control over your business’s finances. Companies like Smartsheet and Asana offer free trials with budget templates and goal-setting for businesses, along with tutorials.
Revenue. Now it’s time to get real. How much is the practice bringing in each month? What is your monthly cash flow from patient payments and insurance reimbursements? How does it change throughout the year? Is it easy for you to track and report on it? Again, if getting to these answers is difficult, you may need some help with practice management and reporting.
What’s the difference between the two?
The answer to this question gives you your first indication of profitability, but you’re not done yet. Now it’s time to add up what is realistic in terms of individual sessions. How many sessions per month keep you operating at optimum level without providers burning out? How many are you currently doing per month, and what is the gap? This isn’t the time to judge your work ethic. This is simply an objective inventory to help you in the next steps of the process.
Looking Ahead: Projecting Profitability
Let’s say you’ve added up the above figures and see the practice’s monthly expenses are, on average, $2,000 more than your monthly income. That means your practice is losing $2,000 per month and your yearly profit is -$24,000.
On the other hand, if your income is more than your expenses, it means your business is profitable. And with your revenue and expense data and a little bit of math, you can project your behavioral health practice’s profitability. If revenue and costs stay consistent, it’s very easy to project. For example, if you had $1,500 of profit in the last 90 days and you don’t expect costs or income to change, you can project $6,000 per year in profit.
On the other hand, if you foresee changes to your expenses or income, those need to be factored in. For example, if you are planning on hiring two new providers in the next month you’ll be able to see more patients, but you’ll also have additional salary and associated employee or contractor costs. If the lease is up on your office in six months, your rent will likely increase – or you can move to a new office or go fully virtual. Whatever the case, those changes to costs will affect your profit margin (profit divided by revenue).
At the end of the day, projecting profitability is about planning to achieve your business’s goals. Calculating your current revenue and expenses means you know where you stand. From there, you have a solid foundation to plan how you want to succeed in the future – whether it’s reducing expenses, adding on new providers and services, or just maintaining a solid profit margin.
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Ram Krishnan
Ram Krishnan is CEO of Valant.